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Samsung BioLogics Refutes SFC’s Verdict on Accounting Fraud Allegations
Revolt against Financial Authorities' Ruling
Samsung BioLogics Refutes SFC’s Verdict on Accounting Fraud Allegations
  • By Choi Moon-hee
  • November 21, 2018, 10:29
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Samsung BioLogics posted a notice on its website on Nov. 20 to refute the SFC's judgment on its accounting fraud allegations.

Samsung BioLogics Co. is facing the biggest crisis since its founding as Korea’s financial authorities have concluded that the company intentionally committed accounting fraud.

On Nov. 20, the company refuted the verdict handed down by the Securities and Futures Commission (SFC) under the Financial Services Commission on Nov. 14.

Samsung BioLogics posted a notice on its website, giving an item-by-item rebuttal of the SFC's judgment on its accounting fraud allegations. In the notice consisting of 15 questions and answers, the company strongly argues that its accounting practice has nothing comparable with the fraudulent accounting cases of U.S.-based Enron Corp. and Daewoo Shipbuilding & Marine Engineering Co. (DSME), which were mentioned by some media reports.

Samsung BioLogics said its case was very different from the accounting fraud cases of Enron Corp. and DSME. "Our case is simply a matter of judgment as to whether changing the status of Samsung Bioepis Co. from a subsidiary to an affiliate complies with the International Financial Reporting Standards (IFRS).”

The company also said, “The nation’s three largest accounting firms already judged that our accounting practice complied with the IFRS. But the financial authorities interpreted it in a different way.”

It also said, “We assessed our corporate value fairly in line with the change in our treatment of Samsung Bioepis in 2015. Our current market capitalization is 22 trillion won (US$19.49 billion), which far surpasses the fair value we estimated at the time.”

Samsung BioLogics added that it is also not right for the SFC to judge that it was a negligence resulted from a violation of the law related to equity that the accounting from 2012 was not made by the company. Samsung said, “The SFC interpreted Biogen’s 'consent right' as a joint management but it corresponds to 'defense right' that a partner company usually helps prevent from releasing competitive products when establishing a joint venture. Accordingly, it is proper to apply a consolidated accounting method, not the equity method, at the time of establishment in 2012.”

Samsung BioLogics also refuted that the internal document allegedly containing the contents of discussion on accounting fraud with Samsung Electronics’ Future Strategy Office (FSO) in advance is not a confidential document at all. The company said, “The document was materials for the financial administration’s weekly meeting and it was shared at the meeting routinely attended by employees and executives higher than the manager-level. The materials for countermeasures were also a general document discussing general issues of accounting. So, it even had some errors in the contents.”
 

Samsung BioLogics also pointed out that it is not convincing that the SFC judged that company intentionally committed accounting fraud by changing the status of Samsung Bioepis from a subsidiary to an affiliate for no justifiable reason. The company said, “We accepted advice from an external audit firm that said we need to strictly follow the IFRS as a global company. Regarding this, we already proved our legitimacy through the audit by the Korea Institute of Certified Public Accountants, at the IFRS joint meeting participated by the Financial Supervisory Service and from a considerable amount of accounting experts.


In addition, Samsung BioLogics explained that it was an objective decision by the accounting firm that the company's value was assessed at 8 trillion won (US$7.09 billion) at the time of the merger of Samsung C&T Corp. and Cheil Industries Inc. The securities market estimated the value of Samsung C&T’s bio business at 8 trillion won (US$7.09 billion) at the time and Deloitte Anjin LLC reassessed the whole value of Samsung BioLogics at 6.8 trillion won (US$6.03 billion) after the merger of Samsung C&T.
 

Samsung BioLogics said it cannot accept the SFC’s decision because trust is most important as a global firm. The company said, “Since we develop and produce medicines associated with human life, “data integrity” is the key element. The latest issue is a very important matter of trust of client companies and investors at stake, beyond a simple accounting issue.